Deal boosts Ciena stock

Arundel firm's shares rise 14% after pact with Cable & Wireless

June 08, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Ciena Corp.'s stock climbed to its highest price in more than nine months yesterday, as the Linthicum telecommunications company announced a new sales contract with the American subsidiary of British telecommunications firm Cable & Wireless PLC.

Ciena shares rose 14.23 percent on the day, gaining $4.1875 to close at $33.625. The stock was the 13th most active issue on American exchanges, with 9.3 million shares changing hands.

The company makes equipment that enables fiber-optic cables to carry more Internet messages and telephone calls through a technology called dense wavelength division multiplexing, or DWDM.

Ciena said Cable & Wireless USA, the subsidiary based in Vienna, Va., agreed to use Ciena's DWDM equipment in a new Internet network that ultimately will link 60 cities in the United States.

Cable & Wireless expects to spend at least $670 million over the next two years to build the network. The companies did not disclose how much of that money will go to Ciena.

But analysts lauded the deal, saying it signifies an important new market for Ciena. "This is a pretty significant contract," said David Toung of Argus Research Corp. in New York. "It definitely validates their strategy."

Ciena grew into one of the most successful start-ups in American history by selling its networking equipment to long-distance phone companies. Last year, however, Ciena's financial health deteriorated sharply as larger competitors emerged, such as Lucent Technologies Inc. and Pirelli SpA.

With the Cable & Wireless contract, Ciena is essentially branching from the long-distance market to the local communications market, selling equipment designed to allow Cable & Wireless to carry more Internet traffic within many metropolitan areas.

Ciena spokesman Denny Bilter called this shift "moving closer to the customer."

"I think it's a great contract," said Raj Srikanth, an analyst with First Albany Corp. in New York.

"They [Ciena] were one of the first ones to receive a contract for the metropolitan product. That's very important. That's where the next battle for the DWDM market is going to be fought," Srikanth said.

Wesley Ford, Cable & Wireless USA's director of transmission systems planning, said "the biggest reason [Ciena] got the order" was that it was the only company that could demonstrate it had the technology Cable & Wireless needed.

Ciena is scheduled to begin shipping products for the Cable & Wireless network next month.

The contract announcement came late in the afternoon on the second day of Supercomm, a major telecommunications trade show in Atlanta.

Supercomm has become a magnet for industry heavyweights and start-ups alike; Ciena is one of hundreds of companies exhibiting products and services there.

Even before the deal was disclosed, Ciena's stock was trading robustly, up two or three dollars a share on heavy volume throughout the morning and early afternoon.

Analysts in Atlanta and elsewhere said this early run-up was due in no small part to product announcements Ciena made late last week, and to a "buy" recommendation issued on Ciena stock by equity-analysis firm BancBoston Robertson Stephens.

The stock only got hotter after the Cable & Wireless deal was disclosed.

Analyst Toung said Ciena shares were probably helped throughout the day by the company's presence at Supercomm.

"When analysts and companies get together and talk, it creates some excitement in the stock," Toung said.